Commodities trading outlook: crude oil and natural gas futures

WTI futures traded largely on level with the previous close during midday trade in Europe today, while Brent lost some ground. The US logged factory orders above expectations, while China reported some mixed data earlier in the day, before the EU posted disappointing CPI. Meanwhile, natural gas futures continued to advance, boosted by warmer weather over top-consumer US.

West Texas Intermediate futures for settlement in July traded for $102.53 per barrel at 14:17 GMT on the New York Mercantile Exchange, up 0.06%. Prices ranged from $102.23 to $102.67 per barrel. Yesterday WTI closed for a 0.23% loss. Previously, On Friday the contract closed for a 1.57% weekly loss, after the weekly EIA report revealed climbing supplies in top-consumer US.

Meanwhile on the ICE in London, Brent futures due in July stood for a 0.28% drop at $108.53 per barrel at 14:08 GMT. Daily high and low stood at $108.98 and $108.32 per barrel, respectively. Brent’s premium to WTI stood at $6.00, narrowing Monday’s closing margin of $6.36. Yesterday the European brand closed for a 0.53% loss, after last week the contract dropped a further 1.02%.

Demand outlook

The US, which consume 21% of the world’s oil, reported factory orders for April today. The figure exceeded expectations to record a gain of 0.7% on a monthly basis, after an upward-revised 1.5% growth in March.

The EU, which accounts for 14% of total oil consumption, posted CPI and employment figures earlier today. The unemployment rate for April was reported at 11.7% to mark a minor improvement on the 11.8% for March. The preliminary figure for May CPI in the Eurozone was logged to have declined to 0.5%, falling short of expectations and recording the lowest level in 5 years. Meanwhile, core CPI was also lower, at 0.7%, after 1.0% in April.

Also today, HSBC and Markit reported their May reading on Chinese manufacturing for a PMI of 49.4, falling short of expectations and retreating from April’s 49.7. Meanwhile, services PMI was logged at 55.5, improving on April’s 54.8. Any reading below the boundary of “50″ means contraction in activities, and anything above it means expansion. The bigger the distance from 50, the greater the pace of expansion or contraction. HSBC’s figure comes after the Chinese government reported an expansion in the sector on Sunday.

The Chinese industrial sector accounts for more than 45% of the economy, which consumes 11% of all oil in the world, while the services represent 44%.

Later this week, on Wednesday the EU will report on May PMI and Q1 GDP, while the US will post services PMI and a nonfarm employment report. On Thursday, HSBC will post services PMI for China, while the EU will reveal retail sales and a crucial ECB interest rate decision. Friday will close the week with reports for industrial production in Germany, and key data on payrolls in the US.

Previously

Yesterday ISM reported quicker expansion of manufacturing activities in the US for May, in accordance with expectations. Previously, the institute had reported a weaker standing, but twice corrected its reading for a sizable increase in growth. Also on Monday, the EU too revealed factory PMI, which was slightly worse than expected, though growth was maintained at a stable rate.

Earlier, on Sunday China posted the official manufacturing PMI for May, beating forecasts for a reading of a slight expansion, in contrast with HSBC’s figure.

Last week a number of reports on the US economy boosted sentiment, as durable goods orders, consumer sentiment and services PMI were all shown to stand much better than expected. However, a sizable gain for oil supplies in the States was reported, which pressured crude contracts lower for the week.

Natural gas

Front month natural gas futures, due in July, grew by 0.82% at the New York Mercantile Exchange to trade for $4.650 per million British thermal units at 14:19 GMT. Prices ranged from $4.593 to $4.661 per mBtu, nearing late-winter levels. Yesterday the blue fuel added 1.54%, after on Friday the contract logged a further 4.2% gain, as investors bet on an increase in power demand in the US.

Last Thursday, the US Energy Information Administration (EIA) revealed that natural gas supplies in the country had gained 114 billion cubic feet for the week ended May 23, exceeding expectations of a 110 bcf increase. The injection is the biggest weekly growth since June 2009, and is 21 bcf above the average gain for the week.

“We’ve had a pretty mild May and that’s raised hopes that these big storage injections will continue all summer,” said for Bloomberg Phil Flynn, senior market analyst at Price Futures Group in Chicago. “There’s growing optimism about the supply picture.”

Inventories, however, remain 40% below the 5-year average for the week, and need to recover more than 2.5 trillion cubic feet until November, when heating demand spikes natural gas consumption. In order to fully replenish the drained stockpiles, weekly injections would need to average 90 bcf through October, 20 billion above the average gains.

In the meantime, the hot summer months ahead should bump up natgas-fueled power demand, as air conditioners are put to work. The EIA, however, expects sustained high yields and gains for stockpiles, through booming shale gas extraction.